State Bank of India, the country's largest lender by assets, on Wednesday forecast stronger annual credit growth and beat estimates for quarterly profit as economic activity gathers momentum after being hammered by one of the world's strictest lockdowns.

SBI rounds off a strong quarterly earnings season for Indian banks as many benefited from a drop in bad loan provisions or increased interest income and pointed to improved retail demand during the festive season.

The bank now expects credit growth to be between 8 per cent-9 per cent for the year, it said, compared with an earlier forecast of 8 per cent. Retail loans grew 14.55 per cent in the second quarter.

"Retail will continue to be our major lever for growth going forward," said Dinesh Kumar Khara, who took over as SBI's chairman in October.

Khara said some recovery was expected in corporate loans growth as well, though the segment remained tepid.

A 49 per cent drop in provisions for bad loans and higher net interest income pushed SBI's net profit up 52 per cent to 45.74 billion rupees ($611.75 million) in the three months ended Sept. 30, beating analysts' expectations of 33.33 billion rupees, as per Refinitiv data.

Net interest margin rose 12 basis points to 3.34 per cent, while gross bad loan ratio eased to 5.28 per cent from 5.44 per cent in the June quarter after a top court directive in September that banks should not recognize non-performing assets until further orders.

While corporate slippages fell and are expected to remain lower in the second half of the year, fresh bad loan additions from agricultural and small and medium enterprises business segments have picked up, said Khara.

SBI shares, down 38 per cent for the year, reversed course from an initial drop to close up 1.1 per cent.